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Investing Basics

Six short lessons for complete beginners, about two minutes each. Free for everyone. No jargon, and no tips on what to buy.

1What investing actually is
What does this mean?
Investing means using money to buy something you expect to grow in value or pay you income over time, like a piece of a company (a stock), a loan to a government (a bond), or a basket of many investments (an ETF).
Why does it matter?
Money in a regular chequing account usually grows slowly or not at all, while prices rise every year. Investing is one way to try to grow your money faster than prices go up.
Example
If you buy one share of a company for $50 and the company does well, the share might be worth $60 later. If it does badly, it might be worth $40.
Things to keep in mind
Investments can lose value, and nothing is guaranteed. Money you'll need soon, like next term's tuition, usually belongs somewhere safer.
2Risk and return go together
What does this mean?
Return is how much an investment gains or loses. Risk is how much and how unpredictably its value can swing along the way.
Why does it matter?
Investments with higher possible returns usually come with bigger ups and downs. Knowing this helps you pick things you can stick with when markets drop.
Example
A GIC might pay a fixed 3% a year with almost no risk. A stock fund might average more over many years, but could fall 20% or more in a bad year.
Things to keep in mind
How long until you need the money matters. The longer your timeline, the more time you have to wait out a bad year.
3Compound growth: why starting early helps
What does this mean?
Compounding means earning returns on your past returns, not just on what you put in. Your growth starts to grow too.
Why does it matter?
Small amounts invested early can end up larger than bigger amounts invested later, simply because they had more time to compound.
Example
Saving $100 a month for 10 years is $12,000 of deposits. At a steady 5% a year (compounded monthly), it would grow to about $15,528. The extra $3,528 is compound growth.
Things to keep in mind
Real returns aren't steady like this example; they go up and down. Try your own numbers in the Compound Interest Calculator.
4Diversification: don't rely on one thing
What does this mean?
Diversifying means spreading your money across many different investments, so one doing badly doesn't sink everything.
Why does it matter?
Even good companies can have bad years or fail. Owning many reduces the damage any single one can do.
Example
Putting $1,000 into one company is a bet on that company. Putting $1,000 into a fund that holds hundreds of companies spreads the risk out.
Things to keep in mind
Diversifying lowers risk but doesn't remove it. When the whole market drops, diversified investments usually drop too.
5Fees matter more than they look
What does this mean?
Most funds charge a yearly fee called the MER (management expense ratio), taken out of the fund automatically as a percentage of your money.
Why does it matter?
Fees are charged every year, so their effect compounds over time just like growth does.
Example
$10,000 growing at 6% a year for 30 years would end up around $53,280 with a 0.25% fee, but around $31,330 with a 2% fee. That's about $22,000 less.
Things to keep in mind
A lower fee isn't the only thing that matters, but it's one you can see in advance. Compare in the ETF Fee Calculator.
6A TFSA is an account, not an investment
What does this mean?
A TFSA is a container. Inside it you can hold cash, GICs, stocks, ETFs and more. The TFSA itself just makes the growth tax-free.
Why does it matter?
Many people think "opening a TFSA" means they're invested. If your TFSA only holds cash, it's earning only the interest on that cash.
Example
You might keep an emergency fund as cash or a GIC inside a TFSA, and long-term savings in investments inside the same TFSA or a second one.
Things to keep in mind
Other accounts exist too: an RRSP is aimed at retirement, and an FHSA at buying a first home. Each has its own rules and limits.

How to research an investment

Six questions to ask before you put money into anything. They won't tell you what to buy, but they'll help you understand what you're looking at.

1Know what it is
Can you explain in one sentence what you'd be buying and how it makes money? If not, keep reading before you invest.
2Check what it costs
Look for the MER or other fees, and any trading commissions your platform charges.
3Look inside
For a fund, read its top holdings and which index it follows. For a company, look at revenue, profit and debt over several years.
4Think about the risk
How much has it dropped in past bad years? Could you leave the money alone if it fell that much?
5Match it to your timeline
Money you need within a couple of years usually doesn't belong in investments that swing a lot.
6Be wary of hype
Tips from social media, "guaranteed" returns, or pressure to act fast are warning signs. Check more than one reliable source.

Look up a term in the glossary Understanding stocks Understanding ETFs

U-Invest provides general financial education and estimates only. It is not financial, investment, tax or legal advice, and nothing here is a recommendation to buy, sell or hold any investment. Calculations are estimates based on the information and assumptions you enter.

1What investing actually is

What does this mean?

Investing means using money to buy something you expect to grow in value or pay you income over time, like a piece of a company (a stock), a loan to a government (a bond), or a basket of many investments (an ETF).

Why does it matter?

Money in a regular chequing account usually grows slowly or not at all, while prices rise every year. Investing is one way to try to grow your money faster than prices go up.

Example

If you buy one share of a company for $50 and the company does well, the share might be worth $60 later. If it does badly, it might be worth $40.

Things to keep in mind

Investments can lose value, and nothing is guaranteed. Money you'll need soon, like next term's tuition, usually belongs somewhere safer.

2Risk and return go together

What does this mean?

Return is how much an investment gains or loses. Risk is how much and how unpredictably its value can swing along the way.

Why does it matter?

Investments with higher possible returns usually come with bigger ups and downs. Knowing this helps you pick things you can stick with when markets drop.

Example

A GIC might pay a fixed 3% a year with almost no risk. A stock fund might average more over many years, but could fall 20% or more in a bad year.

Things to keep in mind

How long until you need the money matters. The longer your timeline, the more time you have to wait out a bad year.

3Compound growth: why starting early helps

What does this mean?

Compounding means earning returns on your past returns, not just on what you put in. Your growth starts to grow too.

Why does it matter?

Small amounts invested early can end up larger than bigger amounts invested later, simply because they had more time to compound.

Example

Saving $100 a month for 10 years is $12,000 of deposits. At a steady 5% a year (compounded monthly), it would grow to about $15,528. The extra $3,528 is compound growth.

Things to keep in mind

Real returns aren't steady like this example; they go up and down. Try your own numbers in the Compound Interest Calculator.

4Diversification: don't rely on one thing

What does this mean?

Diversifying means spreading your money across many different investments, so one doing badly doesn't sink everything.

Why does it matter?

Even good companies can have bad years or fail. Owning many reduces the damage any single one can do.

Example

Putting $1,000 into one company is a bet on that company. Putting $1,000 into a fund that holds hundreds of companies spreads the risk out.

Things to keep in mind

Diversifying lowers risk but doesn't remove it. When the whole market drops, diversified investments usually drop too.

5Fees matter more than they look

What does this mean?

Most funds charge a yearly fee called the MER (management expense ratio), taken out of the fund automatically as a percentage of your money.

Why does it matter?

Fees are charged every year, so their effect compounds over time just like growth does.

Example

$10,000 growing at 6% a year for 30 years would end up around $53,280 with a 0.25% fee, but around $31,330 with a 2% fee. That's about $22,000 less.

Things to keep in mind

A lower fee isn't the only thing that matters, but it's one you can see in advance. Compare in the ETF Fee Calculator.

6A TFSA is an account, not an investment

What does this mean?

A TFSA is a container. Inside it you can hold cash, GICs, stocks, ETFs and more. The TFSA itself just makes the growth tax-free.

Why does it matter?

Many people think "opening a TFSA" means they're invested. If your TFSA only holds cash, it's earning only the interest on that cash.

Example

You might keep an emergency fund as cash or a GIC inside a TFSA, and long-term savings in investments inside the same TFSA or a second one.

Things to keep in mind

Other accounts exist too: an RRSP is aimed at retirement, and an FHSA at buying a first home. Each has its own rules and limits.

How to research an investment

Six questions to ask before you put money into anything. They won't tell you what to buy, but they'll help you understand what you're looking at.

1Know what it is

Can you explain in one sentence what you'd be buying and how it makes money? If not, keep reading before you invest.

2Check what it costs

Look for the MER or other fees, and any trading commissions your platform charges.

3Look inside

For a fund, read its top holdings and which index it follows. For a company, look at revenue, profit and debt over several years.

4Think about the risk

How much has it dropped in past bad years? Could you leave the money alone if it fell that much?

5Match it to your timeline

Money you need within a couple of years usually doesn't belong in investments that swing a lot.

6Be wary of hype

Tips from social media, "guaranteed" returns, or pressure to act fast are warning signs. Check more than one reliable source.